Govt won't dictate price of natural gas: Oil Sec

MUMBAI: Clearing air on marketing freedom on natural gas, the government today said companies will continue to have the right to discover the market price of the fuel and government will in no way dictate the rates.

"The decision of Supreme Court in the famous case has not been sufficiently understood. What has been upheld by Supreme Court is the marketing freedom for (exploration firm)," Oil Secretary S Sundareshan said here.

Under the Production Sharing Contract, an explorer has the freedom to discover the market price by inviting bids from consumers in an open, transparent arms-length manner.

"The government does not fix price. The contractor has the freedom to discover the price," he said. The government only approves that.

Reliance Industries had in 2007 submitted a pricing formula for the natural gas it planned to produce from eastern offshore KG-D6 fields for three years from 2009. The government tweaked the formula and capped the rate at USD 4.205 per million British thermal unit for five years ending March 31, 2014.

The government initially approved the USD 4.205 per mmBtu rate for first 40 million standard cubic meters of gas per day from Dhirubhai-1 and 3 fields in KG-D6 block but later extended to peak output of 80 mmscmd.

Also, the pricing formula for the two fields was also extended to MA field in the block, for which technically a new price discovery had to be done but the government did not allow.

"The government did not fix price of gas (from KG-D6) and the price (USD 4.205 per mmBtu) is not fixed in perpetuity," Sundareshan said.

"Marketing freedom has been upheld by Supreme Court and government stands by its committed enshrined in PSC," he said.

Sundareshan however did not mention about the government taking over the job of fixing the users of the gas.

The companies like RIL cannot choose any consumers and the same is decided by the government.

Sundareshan said he saw no impact of absence of seven year holiday or exemption from payment of income tax from profits earned from the oil and gas produced from the areas awarded in NELP-IX. "The issue with investors is ambiguity. There is none in this round," he said, referring to confusion over if the tax holiday would apply on gas produced from blocks awarded up to NELP-VII.

The proposed Draft Tax Code, to be implemented from April 2012, has done away with profit-linked incentives for all sectors. Instead an investment linked incentive will be available, he said.